InsuraFAQ InsuraFAQ

2024-01-01 · personal, income

Disability Coverage

Overview

Disability insurance replaces a portion of your income if an illness or injury keeps you from working. Policies vary by definition of disability, benefit period, and elimination period, so matching coverage to your job and savings is critical.

What disability insurance typically covers

  • Partial or total disability: benefits if you can’t perform your occupation or any occupation, depending on the policy.
  • Short-term income replacement: usually 3–6 months of benefits after a short waiting period.
  • Long-term income replacement: benefits that can last years or to retirement age.
  • Rehabilitation support: vocational rehab, return-to-work incentives, or workplace accommodations.

Common exclusions and limitations

  • Pre-existing conditions: exclusions or limited benefits if symptoms existed before coverage.
  • Self-inflicted injuries or illegal activities: generally excluded.
  • Mental health or substance use limits: may have shorter benefit periods.
  • Partial disability definitions: may require a minimum income loss to qualify.

Key cost factors

  • Benefit amount: higher monthly benefit increases premiums.
  • Elimination period: longer waiting periods lower cost.
  • Benefit period: longer benefit periods cost more.
  • Occupation class: higher-risk jobs are more expensive to insure.

How to compare policies

  1. Check the disability definition: “own-occupation” is more protective than “any-occupation.”
  2. Review residual benefits: ensure partial disability benefits are included.
  3. Confirm inflation protection: riders like COLA help maintain purchasing power.
  4. Compare elimination and benefit periods: align with your emergency savings.

Tips for choosing coverage

  • Aim to cover essential expenses rather than full take-home pay.
  • Pair short-term and long-term policies for continuous protection.
  • Verify how bonuses or commissions are treated in benefit calculations.

Frequently asked questions

How much income does disability insurance replace? Most policies replace 50–70% of gross income, often with caps.

Is employer coverage enough? Group policies can be a good base, but they may have limited benefits or weaker definitions.

When do benefits start? Benefits begin after the elimination period, commonly 30–180 days.

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